Related Hudson Yards Approved for $328 Million Tax Break

Oct. 15 (Bloomberg) -- Stephen Ross’s Related Cos. received
approval for a $328 million exemption from New York City taxes
for the construction of an 80-story skyscraper and a shopping
mall at its Hudson Yards development on Manhattan’s west side.

New York’s Industrial Development Agency today approved the
subsidy, said Patrick Muncie, an agency spokesman. The project
was previously granted a $106 million tax break for the first
tower at Hudson Yards, and it also will benefit from $3 billion
of city bonds sold to extend the No. 7 subway line, according to
an analysis by the city’s Independent Budget Office.

The planned 13.3 million-square-foot (1.2 million-square-meter) project, which Mayor Michael Bloomberg has called one of
the largest private developments in U.S. history, aims to expand
Manhattan’s midtown business district west toward the Hudson
River, with offices, apartments, parks and cultural venues. Work
on the complex, much of which requires a platform to be built
over a rail yard, has proceeded slower than anticipated, costing
the city more than $100 million in expected tax revenue, the IBO
said in an April report.

The new abatement means “the city will need to pump more
money than previously expected into Hudson Yards to meet the
development’s debt-service obligations,” Doug Turetsky, the
IBO’s chief of staff, said in an Oct. 3 statement.

Today’s decision breaks with a Bloomberg administration
policy to reduce public subsidies for retail development,
according to the IBO, a non-partisan group that studies city
budgets and taxes. The mayor is founder and majority owner of
Bloomberg News parent Bloomberg LP.

‘Indispensable’ Benefit

In testimony before the Industrial Development Agency last
week, Andrew Rosen, a vice president of New York-based Related,
called the tax benefit “indispensable to the construction of
this world-class commercial project in what today remains an
underutilized portion of the city.”

The subsidy is consistent with plans for Hudson Yards
approved in 2006 by the agency, City Council and the Office of
Management and Budget, according to Jonathan Gouveia, senior
vice president of strategic investment for the city’s Economic
Development Corp., which oversees the agency.

Construction of what is being called the north tower
requires the creation of a platform over 26 tracks that make up
a portion of the Metropolitan Transportation Authority’s West
Side Rail Yard, an “enormous swath of land,” he said. The MTA
leases the yards to the developers.

‘Incredibly Expensive’

“It’s incredibly expensive and prohibitive,” Gouveia said
in an interview after the vote. Without the abatement, “you
would likely never see the development of this yard.”

Under the terms of the exemption, Related would get a 40
percent break on its real estate tax for four years, with the
remaining 60 percent going to the Hudson Yards Development Corp.
to cover its bond expenses. After that, the benefit would be
reduced until the 25th year, when it would end.

The application for the subsidy combined the 2.4 million-square-foot office tower with five levels of shopping totaling
1.1 million square feet. The developers expect to finance the
$4.1 billion project with a combination of loans, equity and
funding from tenants, according to the application. The cost
estimate includes $721 million for the platform over the eastern
portion of the train yard. A western section would be developed
later, according to Related’s proposal.

Time Warner

Media company Time Warner Inc. is in negotiations to
relocate its headquarters to the north tower from Related’s Time
Warner Center at Columbus Circle, a person with knowledge of the
talks said in July.

Construction has started on the 895-foot south tower, which
is being built on solid ground. Coach Inc., the largest U.S.
luxury-handbag maker, will be its largest occupant. Tenants
include cosmetics company L’Oreal USA and SAP AG, the German
software firm.

Land values in the Hudson Yards area have been skyrocketing
in anticipation of the No. 7 line’s expected opening next year,
said James Parrott, chief economist of the Fiscal Policy
Institute, a non-profit research group that generally opposes
public subsidies for private construction.

While it’s appropriate for a city to extend subway lines to
spur economic growth, additional incentives shouldn’t be granted
in areas where developer interest is already strong, especially
for retail projects, he said in an interview.